December 06, 2018

MONTH-IN-BRIEF: Corporations, LLCs & Partnerships

Lawrence A. Goldman, Tarik Haskins

Corporate Law

New Jersey Court Holds that an At-Will Employee Shareholder May Not Bring a Minority Shareholder Oppression Action

By Lawrence A. Goldman, Gibbons P.C.

In Metro Commercial Management Services, Inc. v. Van Istendal, the Superior Court of New Jersey, Appellate Division held on November 19, 2018, that an at-will employee, who was also a shareholder, could not have a reasonable expectation of continued employment and dismissed her counterclaim asserting minority shareholder oppression. The defendant corporate employee had become a shareholder of the plaintiff corporation and signed a shareholders agreement acknowledging her status as an at-will employee, that she could be terminated at any time, and that upon termination of employment she would be deemed to have made an offer to sell her stock in accordance with a contractual process. Thirteen years following the entry into the agreement the employee was terminated. The corporation sued to compel the sale of the employee’s stock and she counterclaimed seeking reinstatement and alleging shareholder oppression on a number of grounds. The applicable section of the New Jersey Business Corporation Act, N.J.S.A 14A:12-7(1)(c), provides that a shareholder oppression action may be brought when “those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders . . .” The Court referred to precedent stating that oppression requires frustration of a shareholder’s reasonable expectations, and that a minority shareholder’s expectations must be balanced against the control persons’ ability to exercise their judgment to run a business efficiently.  The Court noted that termination of a closely-held corporation minority shareholder’s employment may constitute oppression, because such a person acquires shares for the purpose of assurance of employment in a managerial position. In the current case, however, the Court found that the language of the shareholders agreement by which the defendant acknowledged her at-will employment status which could be terminated at any time negated any expectation that she could have of continued employment.

Tarik Haskins

Partner; Morris, Nichols, Arsht & Tunnell LLP

Tarik is a partner in the Commercial Law Counseling Group. His practice covers a range of commercial transactions including mergers and acquisitions, secured financings, joint ventures, and business counseling.

Lawrence A. Goldman

Counsel, Gibbons P.C.

Larry, a member of the Corporate Department of Gibbons P.C., counsels middle market and smaller public company clients on a broad array of corporate and transactional matters, focusing on mergers and acquisitions (domestic and cross-border); capital formation and finance; governance; private placements and securities law compliance; distressed business restructuring and the corporate aspects of bankruptcy reorganization; and the organization and governance of joint ventures. He has substantial experience representing audit committees and other special board committees in corporate governance and internal investigation matters. He is a frequent speaker nationally on corporate matters, with a particular emphasis on the organization and operation of businesses as limited liability companies or other alternative entities. He is the author of The New Jersey Limited Liability Company Forms and Practice Manual and has been engaged as an expert witness on alternative entity governance and other corporate issues in litigation arising from transactional matters. Larry is a graduate of Colgate University, Boston University School of Law, and New York University School of Law (LL.M Taxation).